June 22 -Single Chart Shines a Bright Light on US Airlines

INDUSTRY ANALYSIS

By Kevin Mitchell

SUMMARY

The trade group Airlines for
America (A4A) recently published a chart that depicts a rate of airline
industry job growth that is more than double that of the overall US
economy; however, there is much opportunity for additional employment growth. The chart also provides an
opportunity to shine a bright light on the corporate cultures at American
Airlines, Delta Air Lines and United Airlines (Big Three) as those airlines seek
to frustrate competitors, consumers and their regulator, the US Department of
Transportation (DOT). There are alternative paths forward. (See chart at http://btcnews.co/2swrAJf.)

PLENTY OF ROOM FOR JOB GROWTH

For sure, US
airline industry employment growth could be even greater as could overall
travel and tourism job creation. Importantly, airlines cannot measure lost
demand and revenue from disillusioned leisure travelers who have given up on flying
or business travelers who have increased the number of miles that they are
willing to drive their cars to avoid airlines or those high-yield business
travelers who have found ways to reduce their number of monthly trips.

In a
recent Skytrax global customer satisfaction survey, Delta Air Lines secured the
35th place, with United Airlines and American Airlines at places
68and 77 respectively. The 3 once pioneering and currently
largest revenue-generating airlines in the world cannot place in the top 10.
Not even one of them! Interestingly, United
Airlines’ CEO told a recent industry gathering that his airline’s mission is to
have the “best customer service and be the best airline in the world” and that
primarily, “people want frequency, reliability and cost.”

Some 85% of United Airlines’ customers travel with
them at most once a year – and yet those customers are seeking frequency - seriously!
If a mega airline CEO does not know that flight frequency rarely enters the
mind of a leisure traveler, would he possibly understand and empathize with the
dismay that an infrequent traveler might have who finds that he barely fits into
an assigned seat?

Importantly,
in its​ recent worldwide airline customer survey results, Skytrax named Emirates
Airline the best airline in the world and Qatar Airways and Etihad
Airways 2nd and 6th, respectively. Setting aside the best practices that could
be adopted by the Big Three ​to help win back those lost customers, if the Big
Three want to improve, and if United Airlines ever wants to achieve its stated
mission​ to leap forward 67 positions and displace Emirates Airline as the best
airline in the world, then there is a more fundamental problem that the Big
Three must first address.

BROKEN CULTURES

As
sure as the sun rises in the east, frontline employees cannot ever be expected
to deliver a consistent and superior guest-centered air travel experience when corporate
cultures are broken by the now routinely displayed hubris of C-suite airline executives.

By
no stretch can one imagine the culture at Emirates Airline, for example,
allowing the now-famous Doctor Dao to be violently dragged unconscious and bleeding
down an airplane isle while shocked guests look on. Corporate culture affects
every little thing and it flows from the top of an organization. Good culture
begets good strategy that begets good results.

If
the cultures are not turned around at the Big Three, they will never break into
the top 10 of the Skytrax, or any other international survey results, let alone
steal the “best airline in the world” title, as is the stated aspiration of
United Airlines.

BEYOND POOR CUSTOMER SERVICE

The Big
Three have secured their antitrust immunized joint ventures and have massively
consolidated the US airline industry. In doing so, the Big Three have acquired
greatly increased political, economic and market powers and have wasted no time
or opportunity to arrogantly use those powers against their competitors,
regulator and customers. Their broken and worsening corporate cultures have led
not only to quantifiably poor customer experiences but also to jointly
coordinated destructive marketplace initiatives and shameful public policy
abuses.

Consider
that the Big Three have:

a. launched a scorched earth political war on Emirates
Airline, Etihad Airways and Qatar Airways (Gulf Carriers), Norwegian Air
International and Norwegian UK to close US markets to competition;

b. put 25
years of successful US Open Skies policy at risk without regard for the
interests of air cargo carriers and their dependence upon Open Skies, or for the
concerns of airports and numerous other travel and tourism industry
stakeholders;

c. sued DOT in federal district court to defy them over a consumer-protection
advertising rule and then drafted legislation for Congress to further undermine
them;

d. withheld product and pricing information (and are continuing
to do so) from online and traditional travel agents and metasearch firms such
that in the near term efficient comparison shopping and transparency for
consumers have been significantly diminished and in the longer term could be
eliminated; and

e. threatened journalists who report on the travel industry by
complaining about them to editors and producers at major media outlets - and at
times threatening to pull advertising - when anything negative is reported
about them.

When 11
airlines controlled 80% of the domestic US market - now 4 - those behaviors
would have had marketplace consequences and, as such, would not have been
allowed to succeed.

A CLAIM CONTRADICTED

The A4A chart
shows an impressive rate of airline industry job growth, which begs the
question of how the Big Three could claim harm from Gulf Carrier entry into US
markets? Indeed, the Big Three cannot identify one lost aviation job due to
such entry. For example, Delta Air Lines and United Airlines pulled aircraft from
the Atlanta-Dubai and Washington Dulles-Dubai markets and redeployed them to
more profitable markets with no loss of crew jobs despite innuendo​ to the
contrary.

Airline
unions should use this most prosperous period for their industry to examine
jobs ​lost ​due to outsourcing of maintenance and flying, and take up the cause
of outsourced airport service workers - who are integral to improving the
customer experience - and who are earning poverty wages and on public
assistance while the Big Three enjoy record-breaking profits. Unions should be
concerned over the impact of​ abysmal​ customer service levels on jobs.

Instead
of wasting member dues and time and attention on a disastrous political
campaign against the Gulf Carriers, union leaders should consider funding an
in-depth study that measures and models the lost business from widespread poor
customer service and what it would take for the industry to win back those who
have reduced or stopped flying. The study might also quantify the lost jobs
over the past 5 or so years due to the outsourcing of coveted crew jobs on
international routes to joint venture partners.

In the short-term,
higher ticket prices from the government protection being demanded by the Big
Three might enable union leaders to claim credit for endeavoring to prop up
profits and enhanced job security. Over time, however, union members’ jobs could
easily become destabilized by such protectionism as calls increase for Open
Skies cabotage rights(*) and concerns escalate over the public-interest
benefits and efficacy of highly profitable but increasingly anti-consumer antitrust
immunized joint ventures.

ALTERNATIVE PATHS FORWARD

Union leaders
and their members should be worried about the negative implications of Big Three
efforts to increase profits by reducing product and pricing transparency; blocking
airline new entry; and giving lip service to improved customer service. Taken
together, such a strategy can over time lead to a declining industry that few
want a career in and to government intervention that employees and management
will not benefit from.

Alternatively,
as Southwest Airlines, JetBlue, Alaska
Airlines, Emirates Airline and others have proven, when consumers have
complete and accurate information they trust the system and buy more. When
consumers are treated as guests within a healthy culture they feel respected and
buy more. When competitive new entry is unencumbered, consumers enjoy new choices,
innovative services and more affordable airfares, and buy more. Taken together,
the industry grows and its long-term prospects for financial stability and
sustainable job growth are made more certain.

(*) Cabotage is the right of an airline
from one country to operate within the domestic borders of another country.

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Mitchell is founder of
Business Travel Coalition and OpenSkies.travel.